Spare Capacity and Public Policy
"Thirty-three per cent of primary schools were seriously under-occupied"; Accounts Commission Annual Report 2004/05
"The optimist said her glass was half full, the pessimist said his glass was half empty, the Accounts Commission said both glasses were twice as big as necessary, they should sell one glass and share the remaining glass"; The Book of Accountants' Fables - draft version
One recurring issue in Scotish public policy is the undue weight given to accountants advice in public policy analysis. Accountancy can be essential for bookkeeping purposes and accountants can help in assessing and auditing performance of public bodies in limited respects, but policy-makers should steer clear of giving them a dominant role in giving public policy advice in valuation issues, especially those involving surplus or spare capacity.
There is a common delusion that accountants and economists are the same thing. They are not. If you want a justification to close just about anything down, bring in the accountants. If you want to at least have a sense of the economic and social values that can be associated with services in general and public services in particular, bring in an economist (even then you are not finished because there are lots of social, cultural and educational values that economists miss out and don't pretend to capture). The trouble is that many accountants have appropriated economic language and jargon, so what they are saying is often seen as the "economic" argument when it is not.
Consider the following three cases below. Two are real. One is not (at least as far as I know). The important thing is that each follows the same accounting logic to its same flawed end.
You can read the resulting analyis Final
Report: Options for the Ferry Services Between Gourock and Dunoon
on the Scottish Executive website
You can read more in The
Accounts Commission and School Closures
(3) How to close a public toilet
Spare capacity is a fact of economic and social life, from waiting rooms to public toiliets, football grounds to pubs, trains to schools. The reasons for spare capacity may vary, some might be deliberate because of variable or peak demand, but in many cases it simply represents sunk costs which every good economics student knows should be ignored. Whether or not or not you should do anything about spare capacity depends on such considerations as the marginal costs of maintaining this spare capacity (eg any heating, lighting, repairs, maintenance costs), and the value of whatever alternative best use (if any) you could put this capacity to (in economic terms, its opportunity cost). Spare capacity is not necessarily wasteful in economic terms, a happy thought for those who want to encourage competition in ferry services Gourock-Dunoon and fight schools closure programmes across Scotland. Economics may be the dismal science, but it is not as dismal as some accountancy-based approaches to these issues.
After I wrote up the "How to Close a Public Toilet" above as a riduculous example, I came across a wonderful study on the Web. Someone had actually done this! The report notes
(How did they survey these toilets? Was there someone with a clipboard standing inside? Hiding in the bushes?)
The report also notes
"The steady rise in population, combined with
the current use of the toilets,
It looks good, it's got the right words, but when you try to make sense of it, it comes out as a load of ... well, this is getting too scatological. I read the above several times, I am sorry, I don't understand it. It's probably me, I clearly don't know enough about public toilets to speak with authority on this issue.
In fairness, this local authority did seem to be very progressive and has introduced high tech modular toilets (whatever these are). It's just that they seem to be spending too much time hanging around public toilets in the company of accountants for their own good.